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Gap and Banana Sales Slip, Old Navy Up in Q3

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Gap

Old Navy continues to be Gap Inc.’s sole bright spot in a sea of slumping sales.

The San Francisco-based company on Thursday posted another quarter of disappointing results, reporting that net sales decreased 3 percent to $3.86 billion compared to $3.97 billion for the same period a year ago. Net income, meanwhile, fell to $248 million from $351 million.

And the retailer doesn’t expect things to get better anytime soon. It updated its adjusted diluted earnings per share (EPS) guidance for fiscal 2015 to be in the range of $2.38 and $2.42—down from its previous forecast of between $2.75 and $2.80—and anticipates its adjusted operating margin to be about 10.5%.

The company estimated that foreign currency fluctuations cut its diluted EPS growth rate in the quarter by about $0.05 or 6 percent.

Comparable store sales at Gap Global fell 4 percent in the three months ended Oct. 31, while Banana Republic Global’s were down 12 percent. Old Navy Global, however, saw its same-store sales increase 4 percent, which the company said was down to the brand leveraging the power of its “more responsive product operating model.”

Additionally, inventory dollars per store were down 4 percent on a year-over-year basis for the third quarter. Gap Inc. now expects year-over-year inventory dollars per store to be flat at the end of the next three-month period, versus a decline of 6 percent last year.

“With a challenging third quarter behind us, we are sharply focused on holiday execution across all channels,” said Art Peck, chief executive officer. “We are driving forward on our key strategies designed to fuel future growth.”

For Old Navy, that means opening nine more stores in Mexico by the end of fiscal 2015 (it debuted seven in Q3), while Athleta, the company’s activewear arm, is on track to end the year with about 120 U.S. locations.

New, smaller stores are on the way for Gap, too, but the company said it expects its overall store count and square footage to remain flat in the fiscal year, following the announcement in June that 175 U.S. locations would shutter over the next few years,.

According to a statement, “Gap’s leadership team continues to make progress on its transformation agenda, which includes a clear product operating model and actions to build a smaller, more vibrant fleet of stores. These strategies position the brand to drive more consistent, on-brand product collections and enhanced customer experiences across all channels.”

Gap Inc. had a total of 3,794 store locations in 51 countries, of which 3,346 were company-operated, as of Oct. 31.

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